A few weeks after the last budget was introduced, the nation faced a pandemic never before in recent political history. In the last one years, the citizens of the country have rallied behind the Modi government in most of its decisions- be it in following Coronavirus protective measures, following the lockdown measures, or any other instructions.
The middle class of the country suffered income loss due to job loss as well as the salary cuts and now it has many expectations from the upcoming budget. The first and foremost would be raising the Income Tax exemptions. Currently people with income of more than 5 lakh rupees are taxed, and this limit needs to go up.
The per capita income of the country is around 1.25 lakh rupees and an average family has five members. Therefore, if a person earns 6.25 lakh rupees per annum, then only one can compete with the national average. However, the government taxes anyone who has earning of more than lakh and this exemption limit needs to be taken at least upto 6.25 lakh rupees, because the majority of the families in the country have a single earning member and if a person is earning on par with national average, s/he should not be taxed.
The government has already hinted in the Economic Survey that the focus would be on growth rather than redistribution, and there is no other remedy for growth like tax exemption. When the taxes are brought down, the consumer spending as well as the corporate spending goes up, which leads to job creation and economic growth.
Given the fact the country has suffered massive job losses during the Coronavirus, raising the Personal Income Tax limit would be the best remedy. The raising of the PIT limit would not only benefit the individuals but also to MSMEs which pay a large sum – around 30 percent- of total income tax collection. Most of the MSMEs are sole proprietorship businesses, and these pay Income Tax, not corporate tax.
MSMEs are the largest job creators of the country and they have successively suffered due to various reforms implemented by the Modi government. With reforms in place now, the Modi government must offer them tax incentives to ensure that they grow at double digits.
Subramanian Swamy, the BJP Rajya Sabha MP and former professor at Harvard University, analyzed the problem with Income tax very aptly in a speech at World Hindu Economic Forum. “Today, income tax is the most unbalanced tax in our country. There is no income tax in agriculture and low-income groups, and the rich hardly pay anything because of their chartered accountants. The working class, young entrepreneurs, start-ups are the most harassed. When income tax is abolished, the public will be very happy,” said Swamy.
Another thing the middle class can expect from the budget is the expansion of the Ayushman Bharat to include the middle class families of the country. The Economic Survey made a very strong case for public expenditure on healthcare because, as per the research, leaving the medical sector to markets leads to market failure. The Survey argued that due the Information Asymmetry between the service provider and consumer, the excessive focus on private health is not good. Therefore, expansion of the Ayushman Bharat umbrella as well as increase in the allocation can be expected.